UTB LLC v Sheffield United Ltd

In determining costs of an application subsequently compromised, the court must identify the party who substantially obtained the relief sought, viewed against the outcome ultimately agreed rather than an interim order alone. The court may depart from the general costs rule where the application was unnecessary or unreasonable, or where the successful party contributed to the impasse. Responsibility may be apportioned between the parties, including by reducing rather than extinguishing the successful party’s recovery. Costs must be confined to work properly attributable to the application. Work on a party’s own transaction documents before the application was genuinely in contemplation was not recoverable, whereas negotiation of documents after service of the application could properly form part of its costs.

Sheffield United Limited applied for its costs of an earlier funding application concerning urgent finance for Blades Leisure Limited. The application was stood over by consent and the parties later agreed a funding arrangement under which each shareholder lent £1 million to Blades. Sheffield contended that it had substantially obtained the relief sought. UTB argued that the application had been unnecessary, unreasonable and caused by Sheffield’s own conduct.

The court therefore had to determine which party was successful, whether the general costs rule should be displaced or modified, whether Sheffield had acted reasonably in issuing and pursuing the application, and which items were properly recoverable as costs of that application.

1. Outcome. Sheffield substantially succeeded and was the successful party. The proper comparison was between the relief sought and the funding agreement ultimately reached on 7 May, not merely the interim order made on 30 April.
2. It was reasonable for Sheffield to issue the application on 28 April. UTB had failed to respond adequately to proposals for documenting the agreed funding structure, and the proposed short-term finance from FC depended on further agreement and corporate resolutions. Sheffield was therefore entitled to seek court protection, undertakings and the ability to restore the application if necessary.
3. Sheffield had nevertheless contributed to the impasse by attempting to remove references to Blades’ liability to repay the Charwell loan. UTB had also acted unreasonably by failing to engage and respond promptly. Applying Part 44.2 of the Civil Procedure Rules 1998, the court reduced Sheffield’s recoverable costs by 50 per cent rather than denying recovery altogether.
4. The court rejected the contention that the application was unnecessary because FC could provide temporary finance. That proposal did not remove the need for final shareholder funding, and its implementation depended on UTB’s assent.
5. Costs had to be limited to work properly referable to the application. Time spent before the application was genuinely in contemplation, including drafting Sheffield’s own loan agreement, was excluded. Work on facility agreements after service of the application, where it formed part of settling the dispute, was recoverable. The recoverable sum was therefore to be calculated after the specified deductions, with UTB paying one half.